Improving the Supply Chain: Goals and Benchmarking

This is a series on Supply Chain Basics looking at the discipline from the Society of Operations Management perspective. Supply chain is also essential to project management as PMs are typically trained in world class contracting. For example, my Masters program had several courses involving contracting and the Defense Acquisition Workforce Improvement Act, DAWIA, certification highlights the combination of project management and supply chain. In this post, we will explore goals and benchmarking adding some additional support as well.

Goals and Benchmarking

One way to set goals to specific performance levels is by referencing outside performance standards. This process is called benchmarking. The Supply Chain Council benchmark the SCOR process model and make the results available to members in order to compare their performance to others using the model. There are other approaches to benchmarking which fall into three classes; Competitive, Best-in-Class, and Process benchmarking.

Competitive Benchmarking

A company who compares performance to a competitor in the same industry is doing competitive benchmarkling. If the competitor is able to achieve improved performance levels then the measure is an acceptable benchmark. There is a  competitive payoff for companies who are able to exceed a performance goal. Competitive benchmarking is too limiting for many opportunities to improve. Other methods are necessary. 

Best-In-Class Benchmarking

This benchmarking strategy looks to the best anywhere to develop a goal for improvement. Widening the search for a benchmark makes possible more dramatic and inspiring possibilities.  Most companies accounting is very similar. Therefore, the opportunities to benchmark are much wider when including companies from outside the industry. Even when dissimilarities seem overwhelming, the best in a class approach may still produce the most inspiring goals. 

Process Benchmarking

Using a checklist of world-class process descriptions is another way to benchmark. This is a qualitative approach considering features of the process as opposed to quantitative measures of the process. The Oliver Wright group provides a checklist for use in all industries. 

Benchmarking, in summary, is an effective way to choose realistic and inspiring goals. If some else has achieved the goal then naturally people have more faith in reaching the same goal again.  

Comment: People often refer to professional disciplines as fields as in fields of knowledge. Knowledge can be thought of as a landscape with spatial qualities. There are low lying areas where the volume of knowledge is low. But there are regions where volumetric knowledge peaks or is high like a mountain which is representative of a knowledge center, a discipline of thought. A cross section or footprint of the peak in knowledge can be thought of as a field where knowledge is concentrated.

Benchmarking networks those peaks of knowledge without regard to the quality and virtue of the knowledge. There is an assumption of quality and virtue. For example, many scientific professionals believe in randomness as a naturalistic phenomenon despite mathematic and scientific laws that reject the notion of naturalistic randomness. The point of Chaos Theory is to deny naturalistic randomness. Networking or benchmarking these peaks of knowledge where randomness is incorrectly thought yields interesting combinatory play that has no basis in reality. 

In business the goal is, of course, to match or exceed the most competitive practices.  This is a shortfall of benchmarking in that innovation, breakthroughs, and  disruptive practices are not produced. Thus, the creation  competitive advantage does not emerge. Benchmarking is merely matching what other do.  After benchmarking a couple of times, companies arrives at a point where benchmarking no longer yields results.  Everyone is closely the same and competitive advantage is lost. Benchmarking levels the playing field. In short, benchmarking is a tool that improves efficiencies while taking away the competitive advantage of a company's competitors but adds no additional competitive advantage to the benchmarking company.  The end state of benchmarking is that everyone is closely the same. There is no differentiation which is a principle effort of CEOs to create and exploit differentials for profit.  They achieve this by introducing disruptive technologies and products into the marketplace. One profit model for this is Time Profit in which there is a limited amount of time to profit before the competition benchmarks then saturates the market causing margins to fall. The smartphone is a good example that reset the cellular phone industry.  Apple introduced the smartphone disrupting the entire cellular marketplace. Today it is difficult to find a the ole clam shell cell phone anywhere. 

Of course, supply chains need to be highly adaptive and responsive to competitive forces as well as rapid introductions and obsolescence of new chains. 

Reference:

(2011). APICS Certified Supply Chain Professional Learning System. (2011 ed.). Version 2.2.